Sunday, October 26, 2008

A Horse and His Boys

Well, it really isn't about a horse...but there are horses...a couple of really nice chestnuts with prominent blazes...only about 13 hands but nice little ponies...what? You didn't know I was a horseman from the old days? I hung out at all of the tracks from Del Mar to Santa Rosa, including the small town fair circuit...where they broke from a rope...anyway...secrets from my youth...

Appaloosa starring Ed Harris and Viggo Mortensen supported by Rene Zellweger and Jeremy Irons is a splendid little movie...with Ms. Zellweger constantly creating confounding conundrums (not bad, eh?)...that are neatly weaved through the movie and ultimately bring the characters to a point of painful resolution...both physically, emotionally and professionally...and while one could figure things out as it went if you think hard enough on it...these characters make it the best Western I have seen in a long time...and one of the better movies I have seen in a year or so...

worth the watch...I give it four peaches!

So...anything else we should talk about? Hmmmm....

Who is this old guy? Uncle Earl? No, just a dull old economist and of John Maynard Keynes who came up with this little nugget...

"The market can stay irrational longer than you can stay solvent." as we go into this wacky week there are some big questions about the fundamentals of the market which lead us to a couple of serious questions:

*If Keynes is correct it is really pucker up time as we are toast. All of us.

*If Keynes is not correct it is really double down time. Sell the car and the poodle and buy some quality stocks. Very soon.

*Maybe Keynes is half right #1. The market is irrational. But not for long.

*Maybe Keynes is half right #2. We cannot stay solvent. And it has nothing to do with the length of the market crash.

At the moment (a Sunday morning, only one cup of coffee down, so it might change after cup two)...I am leaning towards some combination of options #3 and #4...that he is half right... I think the market will recover...quicker than many suppose...but not quick enough for most...I am thinking that 12-18 months from now we will recover 1/2 of this loss...and then the remaining amount will take another 3 years to get the rest back...which in historical terms will be a "mild depression" and will not be an ordinary economic cycle...

But the solvency thing really gnaws at me...and my point is it is not the stock market that will bring on mass insolvency but rather the unrealistic standard of living most Americans (and other countries as well, namely Europe but even the MidEast oil kingdoms) have created...we have tapped out our homes and saved pennies on the dollar and are awash in debt...and with the housing market we are in a similar situation to oil prices and cars...

What do I mean?

My point is this. When gas prices drop people are going to return to their driving habits of the past...and not learn anything from the pain of $4 rising to $5 and beyond gas prices...and the same will be true of housing prices...

...thus, if housing prices begin to stabilize (which may be happening in some markets) and then slowly recover...people will just put whatever possible advances in equity they make back into silly purchases once again...and we will have learned nothing from this disaster.

I hope I am very wrong on this and that things have changed. We will have to wait and see...

...but in the meantime...go and see a good movie! A BARGAIN MATINEE AND SKIP THE POPCORN!

Saturday, October 18, 2008

The Great Repression

Is it the "Great Depression II" or the "Great Repression I?"

Yepper, now that my retirement savings is down to about $6.04 I am having to make some difficult it is time for some drastic action...I mean everything is on the table...even moving to western Kansas and simply buying a small piece of land for a few thousand bucks...say two or three thousand acres...and sitting on a porch and be angry at the world...but calmer heads have prevailed...and Starbucks is off the list as well...unless I can catch them at a later hour when they are out of decaf and I order that drink and I get it free because they have to brew it...and also get a free coupon for another drink at another trip...

but other than that I am tightening my belt... now that I have decided to stay put what do I think about this mess?

First off, I heard several smart folks recently (meaning they moved to an all cash position in March)...say that we are in the "Great Repression" meaning that government is not allowing us to get to the actual bottom of this thing like Grandma Esther and Uncle Andy did in the 30' that is a fairly interesting and provocative statement...and is therefore obscuring what is really going on...
Here are some comments I heard at a conference from some pretty smart folks.

First, the good, courtesy of Jeff Immelt, CEO of General Electric:
*“I am pretty optimistic. If I put my head on the pillow and am beat up I have to get up the next morning, look in the mirror and say ‘Hello Handsome!’ ”

* “We will have 2 ¼’s negative growth & then grow.”

*“Some of what has happened is good.”

Now, the bad, from Meg Whitman, former EBay CEO & current McCain Advisor:

*“We are in a severe crisis of leadership.”

*““Our past recessions we saw the consumer continue to spend—that is not going to happen in this one.”

And of course, the ugly, kudos to James Wolfensohn, famed investor & Citigroup advisor:

* “The great unknown is the real value of all of these assets. And are they capable of restoring value? No-one knows.”

*“Technology and innovation will save us. We don’t have the wealth any more. China has 1.7 trillion USD foreign reserves; India 400 billion; the USA 70 Billion.”

*“We could previously assume we were competitive. This is no longer a given.”

OUCH! And if we are not really getting to the bottom of the trouble doesn't it follow that we are not at the bottom of the stock market? That we really don't know what assets are worth? Which leads back to the "Great Repression I" metaphor.

The reality is none of us know where this thing is going to really end...and while I don't really agree with Jeffrey Immelt of a fairly quick end to the recession I do think we are in for some very difficult times...

So old Jim Cramer says in an interview the other day that "We are going to have to begin to live like our parents did. We cannot sustain the standard of living we have had."

Ouch again!

Here is what I think I am going to do:

1) Kansas is off the table. Cheap land and cost of living but way too windy.

2) Double down on my retirement plan. I might as well. It is the only chance I have of recovering what has been lost over the past few months. The financial system is actually much safer than it was 30 days ago. Really.

3) Get used to enormous volatility in the markets. It goes up 500 points? No big deal. Down 500 points? No big deal. Especially when it happens all in 20 minutes.

3) Not buy anything. Anything. It is time to be frugal. Conservative. Cheap.

4) Read history more. We have been here before. We could learn a lot from the "Great Panic of 1908." (See the article at:,0,5813124.story )

5) Stay focused on the long term. We have to think 5-10 years here kids.

Hang in there. Confidence will eventually return. The market will go up. Things will stabilize.

And as an entrepreneur, I will tell you that I fully believe we are now entering the "Era of the entrepreneur." More to come on that topic.

But here is something else Meg Whitman had to say this past week:

“Business Schools need to focus their grads away from
Wall Street and look to Main Street.”